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Level 1
posted Nov 21, 2023 8:05:58 AM

Do you report a partnership's ownership of other businesses on Sch L of Form 1065?

I have a partnership that owns shares in another partnership (e.g., Partnership A owns 50% of partnership B). Partnership B has some nonrecourse debt, and a portion of that is allocable to each partner (here Partnership A). On Sch. L of the Partnership A 1065, do you have to report the capital accounts or nonrecourse debt of partnership B that are allocable to Partnership A (e.g., Partnership A's capital account in Partnership B is let's say $10,000, and has nonrecourse debt allocable to that 50% interest of $5,000)-- is this reported on Sch L or not at all?

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1 Best answer
Level 13
Nov 21, 2023 8:28:14 AM

Some comments on your question(s):

  • Partnership A needs to record its investment in Partnership B on the balance; typically line 8 of Schedule L
  • How you record this investment depends on how you are maintaining your books and records
    • Some may record this in accordance with GAAP
    • Some may record this as a tax basis in their investment (which you need to maintain in some manner)
    • Regardless of the method of recording this on the balance sheet, Partnership A will have book to tax differences that need to be recorded and adjusted on their books and records
  • Partnership A does not need to specifically record any of the liabilities that are reflected on the K-1 received from Partnership B, however, those liabilities need to be passed through to the partners in Partnership A (along with their respective share of liabilities of Partnership A) retaining their same character.
  • Both partnerships need to pay attention to the questions in Schedule B as a result of the ownership structure and respond keeping in mind the rules of attribution (constructive ownership).  These rules are beyond the scope of a forum such as this.  

2 Replies
Level 15
Nov 21, 2023 8:09:20 AM

I will page @Rick19744.

 

However, if the partnership owns an asset (or incurs a liability), it most likely needs to be entered on the balance sheet.

 

Level 13
Nov 21, 2023 8:28:14 AM

Some comments on your question(s):

  • Partnership A needs to record its investment in Partnership B on the balance; typically line 8 of Schedule L
  • How you record this investment depends on how you are maintaining your books and records
    • Some may record this in accordance with GAAP
    • Some may record this as a tax basis in their investment (which you need to maintain in some manner)
    • Regardless of the method of recording this on the balance sheet, Partnership A will have book to tax differences that need to be recorded and adjusted on their books and records
  • Partnership A does not need to specifically record any of the liabilities that are reflected on the K-1 received from Partnership B, however, those liabilities need to be passed through to the partners in Partnership A (along with their respective share of liabilities of Partnership A) retaining their same character.
  • Both partnerships need to pay attention to the questions in Schedule B as a result of the ownership structure and respond keeping in mind the rules of attribution (constructive ownership).  These rules are beyond the scope of a forum such as this.